August 10, 2015:Drewry Maritime Research says the expanded Suez Canal will shorten ship transits and reduce transit delays - given that containerships on the East-West routes, the main users of the canal, are now bigger and more expensive to operate. However, given the prospect of much slower growth in international trade following the end of the China export boom of the last 15 years coupled with changes in energy policy away from oil, Drewry says the Egyptian government should not expect the additional capacity of the canal to fill up quickly:

The impressive 'New Suez Canal' project will improve capacity, transit times and reduce delays, not least because it will likely be used by far fewer vessels than expected by its sponsors.

The expansion of the Suez Canal into a two-lane maritime highway, from what could have been described as a congested single country lane, has gone slightly under the radar with more attention paid to the US$5 billion widening of the Panama Canal that won't be ready until next year.

The world is now paying very close attention, impressed as much by the speed of completion as the impact it will have. The 'New Suez Canal' project was first announced in August last year in an address to the UN General Assembly by Egypt's President Abdel Fattah El Sisi, who said it would be the "Egyptian people's gift to the world".

The US$8.5 billion project was originally scheduled to take three years but was instead completed inside one year thanks to some political chivying, with the lavish official opening ceremony taking place on August 06.

The Suez Canal Authority (SCA) estimates that 8.0 percent of the world's maritime traffic passes through its canal and believes that more will come now that a second passage has been added. It expects the New Suez Canal will help to nearly double the average number of vessels transiting per day from 49 to 97 and more than double the revenue to US$13.2 billion within 10 years.

The Egyptian people have invested a lot in the project with the entire funding coming from nationals within six days of asking, but without having seen the prospectus Drewry cannot see how the ambitious short-term projections can be met.

The SCA's net tonnage and tolls (based on NT) have been broadly flat for the past four years and have only just reached the pre-financial crisis levels of 2008. To achieve their ambitious targets, the SCA would somehow need to see toll revenue grow at around 10 percent yearly, when the outlook for the shipping is nowhere near that level.

As far as we are aware the SCA's projections are not cargo sector specific and appear to be based on assumed increased vessel transits (by all types of ship) x vessel tolls. Whether the calculation is based on the current tariff or some future tariff is also unknown.

For the purpose of this analysis we will only consider the implied growth for containerships, which are the most common type of vessel that transits the Suez Canal.

Measured in numbers of ships, containerships constitute about 36 percent of all the vessels transiting the canal, while the share swells to approximately 55 percent when measured by the net tonnage that is the basis for the toll charges.

Therefore, the speed of growth on those container trades that are linked by the canal will have a large bearing on tonnage and revenue.

The number of containerships sailing through the Suez Canal has barely changed in the past three years – the 2014 sum of 6,129 ships is some 2,000 down on the 2008 peak – because carriers have preferred to invest in larger ships, meaning that more cargo is consolidated into fewer ships and services.

This is especially true for the Asia-Europe trades (which accounts for approximately two-thirds of all Suez Canal traffic in TEU) where the average size of ship for North European loops has grown by around 25 percent in two years at the same time as the number of weekly services has reduced from 24 to 21.

The consolidation of Asia-Europe container services between four mega-alliances goes some way to explaining why the Suez Canal's daily ship transiting average has dropped from a peak of 58 ships per day in 2008 to 47 ships last year.

The direction of the Asia-Europe container trade growth will therefore be one of the key factors that will drive Suez tonnage and revenue, more so than the size or depth of the canal.

The vessel waiting/transit times and the level of tolls, whatever they will be, are just a couple of relatively small, micro-level factors that will influences trade flows. Most of the factors are macro-level ones that the SCA cannot really influence.

Since 2010 the yearly growth of laden TEU through the Suez Canal has been 4.3 percent, while Asia-Europe (both North Europe and Med) two-way traffic has been even lower at 3.3 percent.

That trade growth figure would have to more than double to yearly growth of 8.0 percent for the SCA to get close to achieving its 2023 target. Regrettably, Drewry cannot see a way for this to occur. After five months of 2015 two-way Asia-Europe volumes are down by 2.8 percent, meaning that growth in the following years has even further to rise to catch up with the SCA projections.

Some of the shortfall in Asia-Europe volumes could potentially be made up by increased used of the Suez Canal routing for Asia to US East Coast traffic. The SCA has benefited from delays to the Panama Canal expansion as a number of carriers, with a surplus of 8,000 TEU ships, opted to take advantage of the larger capacities the Suez Canal can accommodate by switching to that routing.

For a brief period during the U.S. West Coast port labour dispute the ratio of Asia-USEC via Suez services surpassed those via Panama, although that ratio is now slightly back in Panama's favor as carriers look to gear up for the enlarged Panama Canal.

Again, while Suez can expect to boost its coverage of the US market, as much will depend on the macro events that will drive trade growth as its ability to compete with Panama. Either way, Drewry does not believe any volume gains will be sufficiently large to compensate for weaker growth in the core Asia-Europe markets.

- Based in London, Drewry is a specialist research and advisory organization providing analysis and reports for the global maritime industry.